Dividends

24 February 2025 By PDSNET

Investors know that the return on a share is made up of a capital gain plus the dividend. Private investors are mostly attracted to the prospect of making a capital gain on the shares which they buy and do not often consider the dividends. What they perhaps do not realise is that a capital gain is actually just the dividend in a different form.

If you assume that a high-quality listed company is going to be in business more or less indefinitely, then the only financial benefit that anyone will derive from owning its shares is whatever dividends it declares. So, if you can sell your shares for more than you paid for them and make a capital gain, it is because the person who buys them from you has a higher perception of the future dividends to accrue to that share than you had when you bought them. Ergo – the capital gain arises from a shift in the perception of the company’s dividends.

People interested in a share are constantly adjusting their perception of the future flow of dividends in response to news about the company and their analysis of its prospects. For example, if it is a gold mine and the gold price drops by $10 an ounce, they will adjust their perception of the value of that share down – and the price in the market will fall as a result.

All of this assumes that the company is a going concern that will continue to trade for many years into the future. If, however, the company is being wound up, it will normally sell all its income-producing assets and then distribute the proceeds to its shareholders after all creditors have been paid out. In such a case you can expect the company to become a cash shell and then declare a series of special dividends.

Last week I had a panicky message from one of our clients who had bought Trencor shares after they were added to the Winning Shares List (WSL) on the 14th of November 2024 at 755c. He was panicking because on Wednesday last week (19-2-25) the share dropped 88% from 834c to 97c. Of course, it had smashed through his stop-loss level before he had time to sell it. Consider the chart of the share up until last Tuesday’s close:

Trencor (TRE): March 2024 - 18th of February 2025. Chart by ShareFriend Pro.

The client’s mistake was that he had failed to read the Stock Exchange News Service (SENS) messages for the share. As far back as its financials for the year to the 31st of December 2023 (published on 25-3-24) the company had disclosed that:

...the group is now invested solely in cash and other liquid assets”, and that,

Our business strategy remains to distribute the group’s remaining cash resources to shareholders.

That distribution finally began to happen when they declared a dividend of 730c per share to be paid to shareholders holding the shares at the close of trade on Tuesday the 18th of February 2025.

Obviously, when the share went ex div on Wednesday (i.e. the next day), the share price dropped to reflect that enormous payout. The share still has some value and there will probably be more smaller distributions as the company’s affairs are finalised.

So, the company was a cash shell with no active businesses, but still trading on the JSE. We added it to the WSL because we assessed that its cash was worth more than the share was trading for back in mid-November last year. We were correct, but the return at this stage consists of the 730c dividend plus the current share price of 97c – less the price when we added it to the list of 755c. In other words, an uninspiring 9,5% over 3 months.   


DISCLAIMER

All information and data contained within the PDSnet Articles is for informational purposes only. PDSnet makes no representations as to the accuracy, completeness, suitability, or validity, of any information, and shall not be liable for any errors, omissions, or any losses, injuries, or damages arising from its display or use. Information in the PDSnet Articles are based on the author’s opinion and experience and should not be considered professional financial investment advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional. Thoughts and opinions will also change from time to time as more information is accumulated. PDSnet reserves the right to delete any comment or opinion for any reason.



Share this article:

PDSNET ARTICLES

Sibanye takes off

We have been writing about Neal Froneman and Sibanye for years now. Beginning in 2013, Froneman assembled the Sibanye group over a period of 7 years, buying up mining operations both in South Africa and America at bargain prices. Initially he bought precious metals producers, but more recently he has been diversifying into base metals like zinc and lithium which

The 16 Year Bull Trend

Since the Second World War, the stock markets of the world, including the JSE, have always tended to follow the New York Stock Exchange (NYSE) - and the NYSE is best measured by the S&P500 index (S&P) of its 500 largest companies.

For this reason, we believe it is important for private investors to constantly

CA Sales Revisited

Retailing in Africa is difficult with many of our leading retailers having attempted to open stores in countries to the North of us without notable success. These countries are often unstable and volatile politically. Getting adequate stock to branches has proved problematic and expensive.

It is not surprising therefore that a company has been

Bluetel

Bluetel (BLU) is a company involved in pinless top-ups, prepaid electricity, ticketing and universal vouchers. As such it is a company with substantial repeat business from existing customers. This type of business model is attractive to investors because it implies minimal working capital and strong cash flows.

Bluetel’s purchase

The Debtors' Book

A BIT OF HISTORY

Many years ago, in 1982 when I started this business (which became “PDSnet”), I ran advertisements in both the Rand Daily Mail (RDM) and in the Star – which were the two most widely read newspapers in Johannesburg at the time. At that time, we were a very small business and had no credit rating at all. Despite this the RDM immediately

WeBuyCars - Results

The financial results of companies show how profitable they are and give a good indication of their share’s risk and potential return. WeBuyCars (WBC) is a recent listing which came to the JSE on the 11th of April 2024. Unlike other listed motor vehicle companies, it is a company which specialises in the purchase and sale

Choosing Winners

We are often asked how we go about selecting the shares to put on to the Winning Shares List (WSL). Right now, there are 102 shares on the list with 5 having gone down since they were added, 94 are up and 3 are unchanged. On an annualised basis, 24 of them are performing at above 100% per annum.   

As a private investor,

Kore Revisited

Kore (KP2) remains at once the most exciting and most risky investment on our Winning Shares List (WSL) at the moment. We originally added it to the list just over a year ago on 16th May 2024 at a price of 20c. It subsequently rose to a high of 83c on 3rd October 2024 and we published an article

Rand Strength 2025

The strength of the rand is both a critical and a complex issue for private investors on the JSE. Our currency is influenced by two primary forces:

  1. Our local economy’s prospects
  2. The rand’s role as a leading emerging market currency

These, in turn, are

Sibanye Revisited

In these uncertain times, when nobody really knows to what extent Trump will back down on the international trade war which he has initiated, many investors are moving into precious metals as a hedge against the weakness of paper currencies (especially the US dollar) and paper assets like equities and bonds.

The problem